Cost Accounting

I. TRUE OR FALSE: Write the word True if the answer is correct, otherwise write the
word False. (1 pt each, 15 points)

_________ 1. In order for standard costs to be useful for managerial decisions,

they must be formally entered into the accounting system.

_________ 2. The use of standard costs instead of actual costs increases the
complexity of product costing for inventory valuation.

_________ 3. A standard cost system is more likely to be used with a process

cost system than with a job order cost accounting system.

_________ 4. Cost variances are the difference between the actual costs
incurred and the standard costs allowed for the budgeted units
produced.

_________ 5 If the materials inventory is carried at the standard cost per input
unit, then the materials price variance is the responsibility of the
purchasing department.

_________ 6 A credit in labor efficiency variance account implies that the

actual hours used is less than the standard hours allowed.

_________ 7. In a normal costing system, the overhead costs are charged to

production using actual hours worked instead of the standard
hours allowed.

_________ 8. A large, favorable labor price variance can be offset with a large,
insignificant labor efficiency variance and then, treated as a
period cost.

_________ 9. In a standard costing system, the Work in Process inventory and

the finished goods inventory are valued at standard costs for
financial reporting purposes.

_________ 10. If the debit to the Work in Process inventory account equals the
credit to payroll account, then the actual hours used equals the
standard hours allowed and the actual labor rate equals the
standard labor rate.

_________ 11. Effective planning of variable overhead costs for a product or

service means that a company does involve a variable overhead
activity, even if it does not add value.

_________ 12. The variable overhead efficiency variance is based on the

efficiency with which the cost-allocation base is used.

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 Cost Accounting

_________ 13. Fixed costs for the period are by definition a lump sum of costs
that remain unchanged and therefore the fixed overhead
spending variance is always zero.

_________ 14. An unfavorable production-volume variance always infers that

management made a bad planning decision regarding the plant
capacity.

_________ 15. Under activity-based costing, the flexible-budget amount equals

the static-budget amount for fixed overhead costs.

II. PROBLEM SOLVING: Solve for the following problem. ( 50 points)

Problem 1: (10 pts.)

TOTO Company purchased 40,000 units of Material A at a price of P2.60 per pound. The
standard price of Material A is P2.80 per pound. During the month, 28,000 pounds of
Material A were used, which was 4,000 pounds more than the standard allowed.

Required:

1. Total debit to work in process account for direct materials.

2. Materials price variance
3. Materials efficiency variance

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 Cost Accounting

Problem 2: (10 pts)

Mommy Corporation has a standard labor cost of P55 per unit of output. During the past
month, 1,500 units were manufactured. The total labor hours allowed for this output were
11,000 hours. The actual labor costs were P80,640. Actual labor hours were 11,300

Required:

1. Total debit to work in process account for the direct labor

2. Labor rate variance
3. Labor efficiency variance

Problem 3:

You have been given the following list of a companys variances:

Direct materials price variance P 7,000 unf.
Direct materials efficiency variance 5,000 unf.
Direct labor price variance 4,160 fav.
Direct labor efficiency variance 4,000 unf.

You have also been given the following data:

Actual units produced 10,000
Budgeted units of production 8,000
Standard labor hours for actual output 5,000
Actual direct labor costs P 99,840
Actual price paid for direct materials P 132,000
Standard materials units for actual output 100,000

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 Cost Accounting

The materials purchase price was 2.80 centavos higher than the standard price of 50
centavos per unit.

Required:

1. Actual number of units of direct materials used (4 pts)

2. Actual number of units of direct materials purchased (4 pts)
3. Actual labor hours worked (7 pts.)
4. Actual hourly wage (5 pts)

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 Cost Accounting

Problem 4:

The Anti-RSI Company employs a standard costing system. Data for the month of
September include the following:

Variable overhead cost incurred P 48,700

Total variable overhead variance 300 fav.
Standard hours allowed for actual production 7,000 hours
Actual direct labor hours worked 6,840 hours

Variable overhead is assigned to production based on direct labor hours.

Required:

1. Variable overhead spending variance (6 pts.)

2. Variable overhead efficiency variance (4 pts.)

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III. ESSAY : Answer the following. ( 10 points)

1. Your firm has just discovered that it has an unfavorable material usage (efficiency)
variance. What are some factors that may have caused this variance?

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